I know it seems like a question that Fast Eddie would ask you as soon as walked onto the used car lot. You know the drill, “So how much are you looking for your monthly payments to be?”
Yeah we’ve all heard that classic line. And no that’s not exactly what I’m talking about but I discovered just a couple of weeks ago that I can sort of sound that way at times.
Imagine my horror.
Let me explain myself before our readers lose all respect for me.
I was on the phone with some people just a couple of weeks ago and we were talking about their goals, what they looked to accomplish with the policy they were considering etc.
As our conversation came to a close I asked, “What’s your budget?”
Immediately I sensed that I’d said something they may have been a bit too direct.
I have no excuse. The only explanation I can offer is that this lack of tact comes from years of conducting these types of meetings. And honestly I don’t mean to ask it in a way that’s trying to squeeze the most premium I can out of a client but it dawned on me that it might sound that way?
This is really unfortunate because Brandon and I work really hard at NOT being salespeople. Sure, we have to sell policies for our business to survive. I don’t think anyone begrudges our capitalist sensibility.
Cash Value Life Insurance Has Many Moving Parts
But here’s the reality. If you tell me that you are looking for a participating whole life policy that has the best chance of rapidly accumulating cash value and that you need ‘x’ amount of death benefit, I’m immediately thinking of how we’re going to get you to your desired end.
However, my next question, “So how much were you looking to commit toward the policy” or “What’s your budget for this plan” or “How much on an annual basis are you looking to apply toward the policy” all mean the same thing and the only reason I’m asking is because I’m immediately thinking of the most efficient design for you to achieve what you’re looking for.
In other words, I’m slicing up the premium dollars between base policy premium, term blend and paid up additions. Well, I’m not actually doing it while I’m talking to you but I will have to when I’m designing the policy.
Think about this…
For example: You can arrive at a $500,000 death benefit on a whole life insurance policy with $5,000 of annual premium or you can commit $10,000 of annual premium and get the same $500,000 death benefit. (Please note these numbers are purely hypothetical and pulled them out of thin air)
What’s the difference?
Well, if you commit to the larger premium outlay (10k/year), you accelerate the cash value growth inside your policy. You are taking full advantage of the tax favored status of the cash build up inside cash value life insurance. And you are able to take that extra and put into those magical paid up additions 😉
On the other hand, if you can only commit $5,000 toward the policy, that’s fine, you just won’t get the same rapid accumulation on the cash value side of the ledger.
Pretty simple right?
What you have to realize is that it’s not the same as buying term insurance where you’d say, “How much will a $500,000 20 year term policy run me?”
Cash value life insurance has many more moving parts whether it be whole life or indexed universal life (and fortunately for everyone involved, Brandon and I have mastered the art of fine tuning all of those parts to create a plan that will come as close as humanly possible to meeting all of the client’s objectives).
Get to the point already.
My point is that when we ask someone about their budget, it’s not us trying to have them pay more than is required for a particular death benefit. Keep in mind that 99% of the time (that’s an official number) we deal with clients who only see the death benefit as a secondary concern anyway.
Most of the people we work with are looking to use cash value life insurance as a tool, a non-correlated asset…not to say they don’t need the death benefit or even want it but it’s not primary for them.
That’s why we might think you’d be interested in committing more premium than is required for a particular death benefit.
As a matter of fact, most of the time we are minimizing the death benefit to the lowest level we can get away (working hard to keep the policy from becoming a MEC) with for a given premium. Most clients approach us with, “Hey I’d like to put $45,000/yr. into a policy for the next 20 years, then turn on the income faucet…can I do that?”
The answer: Yup
So, then our job is to maximize the cash value growth to make the best use of their dollar. I hope that makes sense.
And I’d be remiss if I didn’t close with a shameless plug. If you or someone you know might interested in talking about the use of cash value life insurance as an alternative savings vehicle, a non-correlated asset or just because they like to go against the flow of all the pop culture financial “gurus”, we’d more than happy to help. Just use our contact form to get in touch with us.